Q1 2025 Canadian Pacific Kansas City Ltd Earnings Call
Please standby we're about to begin.
Beau: Good afternoon, everyone. My name is Beau and I will be your conference operator today at this time I would like to welcome everyone to see PK six first quarter 2025 conference call. The slides accompanying today's call are available at Investor Dot C. P. K C. R Dot com.
Beau: Lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question simply press Star then the number one on your telephone keypad. If he would like to withdraw your question Press Star two.
Christian: I'd like to introduce Mr. Christian <unk>, Vice President capital markets to begin the conference call. Please go ahead Sir.
Speaker Change: Thank you Paul Good afternoon, everyone and thank you for joining us today before we begin I want to remind you. This presentation contains forward looking information actual results may differ materially the risks uncertainties and other factors that could influence actual results are described on slide two in the press release and in the MD&A filed with Canadian and U S.
Speaker Change: <unk>. This presentation also contains non-GAAP measures outlined on slide three.
Keith Creel: With me here today is Keith Creel, our President and Chief Executive Officer, Dean <unk>, Our executive Vice President and Chief Financial Officer, John Brooks, Our executive Vice President and Chief Marketing Officer, and Margaret Our Executive Vice President and Chief operating officer. The formal remarks will be followed by Q&A and the interest of time, we would appreciate if you limit your questions to <unk>.
Speaker Change: It is now my pleasure to introduce our president and CEO, Mr. Keith Creel, Hey, Thanks, Chris That's certainly great to be with you with everyone here with everyone today for storage business.
Speaker Change: I'd be remiss not to pay tribute and express my appreciation to the 20000 strong team of railroad or as we have spread across three nations that I get privilege to serve with them on a daily basis that actually produce these results results that certainly.
Speaker Change: Demonstrate industry best performance.
Speaker Change: First quarter the team delivered revenue of $3 8 billion, which is up 8% revenue growth.
Speaker Change: This is driven by volume growth of 4%.
Speaker Change: An operating ratio of 62, five which is a 150 basis point improvement.
Speaker Change: And industry best earnings growth at 14% producing a dollar in six cents of earnings finally, most importantly, a record performance from a safety perspective, driving tremendous improvement on both train accidents as well as personal injuries.
Speaker Change: If it were undoubtedly off to a strong start in 2025, and we're experiencing a strong start to the second quarter as well that being said there is certainly an undeniable macro environment uncertainty that just trade policy uncertainty.
Speaker Change: And currency uncertainty as such based on what we do know today, we do feel it's prudent and responsible to adjust our guidance at this time.
Speaker Change: That said I firmly believe as a leader it's our responsibility to drive positive results for those things that we control.
Speaker Change: Not paid to make excuses crisis creates opportunities and that's how we're approaching this uncertainty around tariffs and trade policies. Our base business remains strong it's reflected in the results in the quarter and our volumes year to date driven by strength in our green portfolio coal potash intermodal, including a record quarter on a Midwest Mexico.
Speaker Change: For us as well as the new partnership with Gemini.
Speaker Change: The uncertainty.
Speaker Change: That's created by these shifting trade policies on a positive side is also accelerating opportunities that we always eventually felt would develop when we combine these two companies.
Speaker Change: It's unparalleled three nation network is uniquely built for times like this.
Speaker Change: We stepped into this trade storm that we're facing to become market makers were seeing opportunities for new trade flows between Canada, and Mexico, they've got increased refined fuels lpg's plastic screens that our customers in Canada are sending south as they look to diversify their end markets are network connects to those.
Speaker Change: Even in markets that land bridge to Mexico uniquely the ability to move more appliances coming north furniture food products finished vehicles and auto parts from Mexico to Canada as well she PKC uniquely serves as a land bridge between Canada, and Mexico were working closely with our customers and creating these industry unique positive outcomes.
Speaker Change: But it's not just that the cover level customer level that were driving these results. Our teams are working closely with the government in Canada at the federal provincial level as well as the government of Mexico regarding policies that could further in center buys growing Canada, Mexico trade bodies, we're hearing from both governments a genuine desire to see the Canada, Mexico trade.
Speaker Change: They ship mature and deepen and we're playing a major role in supporting that agenda agenda.
Speaker Change: Now, let's talk more on the U S front with the F. R E. Another very encouraging area of opportunity positive developments and opportunities that we've been actively working on from a regulatory perspective I'm extremely encouraged by the early discussions with Secretary Duffy.
Speaker Change: And the U S Department of transportation team, especially those in place at the F. R E on their willingness to implement process changes and utilization of technology.
Speaker Change: To deliver safer more reliable outcomes. It makes too much sense not to do these things Mark will get into the details they're fact based data driven.
Speaker Change: Results are the opportunities that the regulator wants.
Speaker Change: To embrace for best outcomes from a safety perspective, as well as from a surface perspective. This is all again refreshing change in my mind common sense best sense value, creating change.
Speaker Change: In line with other value creation opportunities that we realized in the quarter. The P. C. R C. The Panama Canal railway as you've seen early in the month after careful evaluation we.
Speaker Change: Made the decision to divest our 50% stake in the railroad.
Speaker Change: The sale of this non core asset to a key strategic partner a major customer of the P. C. R. C allows us to focus on our core business and generates additional capital that can be deployed to create value for our shareholders elsewhere.
Speaker Change: And our three nation network.
Speaker Change: Shareholder returns in other areas of strength last month, having delivered on our commitment to repay debt and reduce our leverage following the merger, we announced a new 4% share buyback program and just yesterday, we announced a 20% increase in our quarterly dividend.
Speaker Change: Very pleased with this company to be in a position.
Speaker Change: Strength again to begin returning cash to shareholders, particularly and that's a volatile market.
Speaker Change: So in closing let me say this the short term.
Speaker Change: Uncertainties undoubtedly from the macro to trade policies that said this network is performing extremely well and volumes continued to be strong with continued the momentum we carried for 2020 for the first four months of 2025, just as we told you. We would do we have the opportunity the network and the team to drive a differentiated outcome.
Speaker Change: And that's exactly what we will do so with that said I'm going to turn it over to mark to speak a bit to the operation John provide some color on the markets Nadeem on the numbers and then well open it up for questions.
Mark: Do you Mark Thank you Keith and.
Speaker Change: Good afternoon.
Speaker Change: Operating team did deliver another strong strong performance for the quarter demonstrating why they are the best in the business, they're focused on safely delivering our precision scheduled service model is delivering exceptional results even during some of the challenging winter operating conditions throughout most of February.
Speaker Change: With three consecutive weeks of extreme cold is no easy feat.
Speaker Change: Particularly proud of how quickly our network bounce back to produce a record March we have carried this momentum also into second quarter.
Speaker Change: Think about the results we continued to drive strong year over year operating improvements, our train weight and length, and 5% and 4% our locomotive productivity improved 3% fuel efficiency was flat despite the challenging winter.
Speaker Change: We delivered on strong demand and in March we delivered the strongest daily GTS and our combined company history.
Speaker Change: We met the demand safely efficiently and part of by leveraging our prior investments and locomotive interoperability, allowing us to send power from the southern portion of the network to the Western portion of Canada, where we saw a significant surge in G. D. M. A resilient network is well positioned to maintain this momentum quickly adapt to.
Speaker Change: As in the operating environment as needed.
Speaker Change: If I look at safety.
Speaker Change: Yeah for any personal injuries were point 98, which is 14% better year over year improvement our F. R. E train accident at a record <unk> 38 is 58% improvement year over year and noted a record performance as a combined company.
Speaker Change: Although we never stopped striving to do better I'm extremely proud of the team for their commitment to our homesite culture.
Speaker Change: If I look at the labor update just turned into labor I'm pleased on the progress we have made in this space recently, we announced four year agreements ratified by both.
Speaker Change: Uniforms, and wet and U S W and Canada, representing our mechanical engineering and clerical forces.
Speaker Change: We're also working closely with the unions in the U S to expand our hourly agreement. So he's already agreements will support some of the redefined crew districts that we are in the process of implementing.
Speaker Change: As we evaluate traffic flows across this new network combining crew districts in certain areas will allow us to run extended runs further improved cycle times and deliver more resilient service to our customers.
Keith as Keith noted and very proud we're working closely with the FAA on a number of initiatives that will enhance safety and generate operational improvements, including removing redundant are taxed at the U S. Mexican border.
Speaker Change: Also secure in the final waiver approval to optimize where we change about orders.
Speaker Change: Better wells on our network driving a yard efficiencies and also reducing dwell at key locations like Kansas City and Laredo.
Speaker Change: Florida, our coldwell technology that will that when implemented in Canada, our when we did implement in Canada, we've identified 30% more defects than standard tests.
Speaker Change: And the ability to better utilize our broken rail detection the dark territories. Since we began this in 2021, we've detected 150 <unk>.
Speaker Change: Instances are broken rail preventing numerous numerous derailments I'm extremely.
Speaker Change: Really encouraged by the FAA on their willingness to explore the process and technology improvements, which will lead to improved safety outcomes and enhance service.
Speaker Change: As I look at the balance of 2025, our capital plan is built to support safe efficient sustainable growth through pinpointed investments we.
Speaker Change: We have capital investments coming online. This year include the merger sidings in CPC that we spoke about along with targeted investments in Mexico, and Kansas City area to improve fluidity through those key corridors. We're also beginning to take on delivery of the new tier four locomotives ended coming week that will support our growth and improve reliability.
Speaker Change: And fuel efficiency for our fleet, we will continue to make targeted safety investments across the network, including Hotbox detectors, and broken rail detectors, which are improving safety and generating material expense savings.
Speaker Change: So in closing we have a lot of momentum operationally. This network is built to drive growth with the team there with the team to execute it the operating team and commercial team are closely aligned and work with each other on our customers to adapt quickly to changes in demand and traffic flows.
Speaker Change: I'll pass it over to John Alright, Thank you Mark and good afternoon, everyone.
John: Extremely pleased with the record volumes and revenue continued strong pricing and unique value for our customers that we delivered this quarter. This performance is unique particularly impressive if you think about the weather impact from February along with the macro and tariff policy uncertainty.
John: Q2 is off to a strong start as Keith said and our network is performing quite well and although we continue to face uncertainty. The team is laser focused on what we can control and I'm confident in our ability to deliver disciplined growth to this network.
John: Now looking at our Q1 results this quarter, we delivered freight revenue growth of 9% on a 4% increase in our Tms since per RPM was up 5% with strong pricing and FX, partially offset by fuel and mix now.
John: Now taking closer look at our first quarter performance I'll speak on an FX adjusted results starting with our bulk business grain revenues were up 4% on 3% volume growth a record Q1 performance.
John: Canadian grain volumes were up 12% driven by increased green to Vancouver, and Mexico export demand remains steady and we drive unique growth from our synergies.
Now looking forward our comps remain favorable through the first half of the year. The BRC CPI was recently reported at three 1% and our outlook for further synergies remained strong.
John: Moving to U S grain volumes were down 5% over prior year as we saw reduced volumes of U S. Grain exports. However, our U S grain franchise remains well positioned with available grain stocks and as we look ahead, we expect steady volumes across multiple outlets, including to the PNW.
John: Canada, Eastern U S and down to Mexico.
John: We also had a record Q1 in potash with revenues up 10% and 8% volume growth with.
John: With positive demand fundamentals and Canpotex fully committed at strong levels through the first half of the year. We continue to expect another strong year of potash growth in 2025.
John: And to finish out bulk we closed the quarter with coal revenue up 21% on 10% volume growth.
John: Strength was driven by higher Canadian met coal.
As we move more volume to Vancouver, and Thunder Day Thunder Bay, driven by inventory draw downs, resulting from the prior labor strikes and weather impacts.
John: Now moving to our merchandise business segment energy chemicals, and plastics revenue grew 3% on flat volumes our base ECP franchise continues to deliver volume growth across multiple commodities from synergies and self help market share gains and they were offset this quarter, though by law.
John: Our crude volumes.
John: We had strong growth from refined fuel shipments in plastics from both the U S. Gulf Coast in Canada in Mexico. We also posted an all time record LPG performance in the quarter as our network as efficiently connecting Canadian production with destinations in the U S and Mexico.
John: Looking ahead, we have a very positive outlook for this business segment with.
John: With opportunities across multiple commodities, improving crude fundamentals and new opportunities for trade directly between Mexico and Canada.
John: Forest products revenues were up 2% and 4% volume growth, we continue to drive synergies and extended length of haul in this space despite uncertain market and a softer base demand volume this quarter did benefit from higher wood pulp and paperboard driven by synergies and a new contract.
John: That we secured last fall.
John: Metals minerals and consumer products revenue was down 1% on flat volumes.
John: Softer demand environment, coupled with supply chain shifts impacted the volumes in the quarter. These declines were partially offset by higher volumes of frac sand and aggregates.
John: Looking forward, we see lower cross border steel demand, resulting from the tariffs. However, we expect to see partial offsets from growth at two new aggregate trans load terminals, along with the development of direct steel moves that our network can facilitate between Canada and Mexico.
John: Yes.
John: Moving onto the automotive area revenues were up 18% and 24% volume growth we posted another record quarter. As this continues to be an area of unique growth for CP Casey driven by our advantage footprint servicing production plants in auto compound across North America, along with our <unk>.
John: <unk> loop service solution.
John: While evolving trade policy has resulted in choppy volume.
John: Our long term outlook remains strong and we're staying close with our customers to drive growth in this business segment.
John: On the intermodal side revenue and volumes were up 4% starting with domestic intermodal we delivered solid performance this quarter with volumes up 8%, we are seeing steady volumes with our Canadian retail customers and strong momentum on our <unk> 180 181 service.
John: As customers continue to take advantage of the fastest most efficient cross border rail solution between the U S, Mexico and Canada are.
John: Our volumes on this service were up 42% in Q1 and March was our highest volume month on record now.
John: Now looking ahead, we have good line of sight to domestic intermodal growth as our business with Schneider National continues to outperform and Americold cold storage warehouse located co located in Kansas City starts ramping up mid year.
John: On the international intermodal front volumes were flat in the quarter, we saw higher volumes through the port of St. John in Lazar row, primarily with half egg Lloyd as Gemini vessels started to ramp up in March.
John: However, some of that growth was offset by lower volumes through Vancouver and Montreal.
John: Looking forward, we continue to see a lot of opportunity in this space as the Gemini Alliance increasingly utilizes CPE Casey Sir imports, which you are now seeing in our volumes quarter to date.
While the trans Pacific market experiencing volatility as a result of tariffs or divorce or diverse port access across North America, and reliable service proposition positions us well as trade policy evolves.
John: To close while the macro and trade policy remains uncertain, we continue to be confident in a unique growth opportunity. This franchise has coupled with strong fundamentals in our bulk business and disciplined pricing.
John: I am extremely encouraged by this network's resiliency and this team's ability to develop and convert new markets and I remain confident in our volume outlook for the year.
Nadeem: So with that I'll now pass it over to Nadeem, great. Thanks, John and good afternoon.
Nadeem: Turning to our first quarter results on Slide 12 C. Pkc's reported operating ratio was 65, 3% and the core adjusted operating ratio came in at 62, 5% of 150 basis point improvement over prior year.
Nadeem: Diluted earnings per share was <unk> 97 cents and core adjusted diluted earnings per share was $1 six up 14% versus last year.
Nadeem: A closer look at our expenses on slide 13, I will speak to the year over year variances on an FX suggested basis comp and benefits expense was $682 million or $677 million adjusted for acquisition costs.
Nadeem: The year over year decline was driven by lower stock based compensation and efficiency gains from improved train weights and lower crew costs, partially offset by inflation and volume driven increases from higher GTS.
Nadeem: As we look to the rest of the year, we expect our average head count to be roughly flat driving labor productivity gains against mid single digit volume growth.
Nadeem: Fuel expense was $481 million up 3% year over year. The increase was driven by 3% higher G. T M's, partially offset by lower price and continued improved efficiency.
Nadeem: The change in fuel prices was a $22 million or 20 basis point headwind to the quarter.
Nadeem: Materials expense was $123 million adjusted for acquisition costs year over year increase was driven primarily by the long term parts agreement that was put in place last year.
Nadeem: Arriving higher materials expense favorable offset within P. S N O for net savings in the quarter. We also saw higher maintenance expense this quarter driven by unfavorable weather conditions.
Nadeem: Equipment rents were.
Nadeem: $99 million up 14% year over year, the increase was driven by higher volume as we continue to extend length of haul, particularly for our automotive business along with reduced efficiency from weather impacts in the quarter.
Nadeem: Depreciation and amortization expense was up 4%, resulting from a higher asset base.
Nadeem: Purchased services and other expense was $573 million adjusted for acquisition costs and purchase accounting.
Nadeem: 1% year over year.
Nadeem: Year over year decline was driven by savings from the long term parts agreement, which I mentioned earlier, along with lower casualty expense. These savings were partially offset by the impact of lapping at 31 $34 million onetime non competition waiver received last year.
Nadeem: Despite the impact of weather this quarter, we continue to drive efficiency and cost synergy gains these gains along with lower inflation are driving sustainable improvements to our cost structure.
Nadeem: Moving below the line on slide 14, other expense was $7 million in Q1, driven by FX impacts in the quarter other.
Nadeem: Other components of net periodic benefit recovery was $107 million, reflecting primarily the lower discount rate compared to 2024.
Nadeem: Net interest expense was $216 million or $211 million, excluding the impact of purchase accounting the year over year increase was driven by higher short term debt balances new long term debt issued in the quarter along with FX impacts.
Nadeem: Tax expense was $292 million or $322 million adjusted for significant items and purchase accounting.
Nadeem: For 2025, we continue to expect CDK six core adjusted effective tax rate to be approximately 24, 5%.
Nadeem: Now turning to slide 15, and cash flow Q1 cash provided by operating activities increased 14% to approximately $1 2 billion.
Nadeem: Continued our strong level of investment in the network with Capex spend of $711 million in the quarter cash flow remains strong as we delivered $466 million and adjusted free cash for the quarter.
Nadeem: Quarter also marked an important milestone as we resumed shareholder returns for the first time since the merger in late February aligned with our principles of disciplined and opportunistic shareholder returns, we announced the new 4% share repurchase program.
Nadeem: This was an acceleration from our original plan in order to take advantage of volatility in the market in the first months of the program, we repurchased three 5 million shares or approximately 9%.
Nadeem: In line with our strategy of a balanced approach to shareholder returns as Keith mentioned yesterday, we announced a 20% increase to our quarterly dividend. This dividend will continue to be an important avenue to return cash to shareholders and we intend to gradually increase that over time towards a payout ratio of 20% to 30%.
Nadeem: Now looking at our guidance update.
Nadeem: January we gave a wider guidance range acknowledging macro uncertainties and we've committed to updating that outlook as we learn more four months into the year. We are tracking right on plan with volumes up mid single digits. The updated guidance reflects our current view of the impacts from trade policies on certain areas of our business.
As well as the impact from a stronger Canadian dollar, which at current levels what percent or 2% a two point headwind to the guidance we issued in January.
Taking a step back and review of the quarter Mark and his team have the network running extremely well John and his team are driving industry, leading growth and we are still tracking to mid single digit volume growth for the year we.
Nadeem: We continue to deliver disciplined on price and cost control and we have resumed returning cash to shareholders. While metrics remains uncertain. The team continues to deliver strong results and we're very well positioned for another year of double digit earnings growth.
Keith Creel: With that Keith I'll turn it over back to you. Okay. Thanks, gentlemen, operator, let's open it up for questions.
Speaker Change: Certainly Mr. Creel. Thank you very much ladies and gentlemen at this time, if you would like to ask a question simply press Star then the number one on your telephone keypad.
Speaker Change: I would like to withdraw your question Press Star two as previously highlighted please limit yourself to one question. We go first this afternoon to Scott group of Wolfe Research.
Speaker Change: Okay. Thanks.
Jonathan: Afternoon, So Jonathan I wanted to start with you.
Jonathan: There is seemingly this big sort of import cliff coming into the U S and wonder.
Jonathan: I'm wondering are we seeing are we expecting to see the same thing into the Canadian ports and Mexican ports.
Jonathan: How do you think about the impact of that and maybe this is silly but.
Jonathan: Do you think there's opportunities for Canadian ports to be gaining share from U S ports, maybe as a work around with tariffs and then just like broaden out to the broader like tariff thing just.
Jonathan: What you like what percentage of your book of business do you think is ultimately.
Jonathan: If exposed here I know there was a bunch, but broadly in the tariffs.
Jonathan: Alright, let me see if I can work and work through that a little bit.
Jonathan: On the international front I would say we were very different than I think what.
Jonathan: The U S roads may or may not.
Jonathan: Phase here in terms of that cliff.
Jonathan: I would say, we really haven't seen a whole lot of pull ahead on on that front at all as it relates to international.
Jonathan: Our volumes are I think uniquely positioned strong right now and I think you can definitely see it in the numbers right now simply on the basis of the partners that we've selected.
Jonathan: The growth with Gemini and they're off to a really good start and I would tell you those those volumes both at port of St. John and add some term in Vancouver have been somewhat stronger than we expected.
Jonathan: And again.
Jonathan: As you know the majority of our freight over time has somewhat transitioned maybe a little bit more away from cross border U S freight too.
Jonathan: A higher profile of Canadian destined freight in and I think we're benefiting from that right now.
Jonathan: And maybe to that point.
Jonathan: Hum.
Jonathan: Very small percent of our book I'm going to say less than 1%.
Jonathan: Is international freight that would be let's call it from China destined to the U S through through our through our Canadian Port So.
Jonathan: I would characterize that as a little risk.
Jonathan: And honestly, we continue to see strong growth at Lazar ROE I think I've consistently said at last year. It was the fastest growing port.
Jonathan: In North America, and frankly, the world in many cases and Lazar Road continues to show good growth.
Jonathan: Not only with our domestic service within in Mexico.
Jonathan: But then but then also we've seen a steady growth in some of our cross border business and that that continues today that largely has not been impacted by any tariffs.
Jonathan: So.
Jonathan: I feel really good about what the future holds on our international business right now.
Jonathan: Broadly speaking on the tariffs.
Jonathan: You know certainly the automotive area is an area that.
Jonathan: It presents some risk and choppiness that we've been watching.
Jonathan: The steel tariffs are an area that we're keenly focused on and working with our customers on alternatives.
Jonathan: As I look ahead.
Jonathan: We get to new crop in the harvest in the U S. We.
Jonathan: We'll certainly be watching how our soybean movements.
Jonathan: Progress export to China, and what alternative markets, we can develop for for that business and really those are the areas that we're focused on.
Jonathan: I think the good news is that okay.
Speaker Change: As Keith alluded to.
Speaker Change: Really the balance of our book has been quite strong so far year to date.
I Hope I got most of them are really helpful. You got it. Thank you.
Thanks Scott.
Walter: Thank you. We'll go next now to Walter <unk> with RBC capital markets. Please go ahead.
Walter: Thanks, very much operator, good afternoon, everyone. So my question is really on your volume cadence and John you mentioned that your second quarter seems to be starting out.
Walter: Even stronger than your first and accelerating I mean last week was up almost 20%.
Walter: And you didn't change your R. A T M guide as part of the EPS Guide and just wanted to.
Walter: To dive in a little bit more as to what really is is leading to an EPS growth reduction while holding your our Tms.
Walter: Which you are Tms are still up mid single digits and if anything accelerating from here. So just curious the logic there and in terms of how you map out your guidance by each of those.
Walter: But each of those inputs.
Speaker Change: Well Walter let me just take that just in terms of where the Canadian dollar is really appreciated since the beginning of the year.
Walter: Our initial guidance.
Walter: At a Canadian dollar exchange rate of around $1 $42 43 level.
Walter: I look today, we're closer to $1, 37% 38, so that in and of itself has an EPS impact of <unk>.
Walter: The two percentage points. So if you look at the low end of guidance, we went from 12% down to 10, and that's really the big driver of that really around the currency. So.
Walter: We still anticipate that mid single digit RPM growth as I mentioned, so that's that's the big driver.
Speaker Change: I appreciate that color. Thanks, Eddie.
Eddie: Thanks Walter.
Speaker Change: Yeah.
Speaker Change: Thank you. Your next question comes from Chris Wetherbee of Wells Fargo. Please go ahead.
Chris Wetherbee: Yeah. Thanks, Good afternoon, maybe just a follow up on that so I guess, the low end kind of moves with FX should we assume that the high end kind of ticked down a little bit more maybe on the lower end of mid single digit RPM. So then I guess, maybe if I broaden out the question a little bit for 2025, how do you think about the <unk> in that context, maybe you want to answer on <unk> or give some.
Speaker Change: Thoughts around the full year whenever it's helpful.
Speaker Change: Yes, I'd say, Chris I think that's fair in terms of.
Speaker Change: When we factor in some of the tariff impact in.
Speaker Change: Policy changes that could have an impact on the top end of volume so.
Speaker Change: Maybe it's not six maybe it's closer to five and that type of level.
Speaker Change: As far as the or you should see sequential improvement from the 62 and a half of course, our Q1 has typically much higher.
Speaker Change: Or then than the rest of the year.
Speaker Change: That to continue to improve over the course of the year.
Speaker Change: Traditionally we've seen two to 250 basis point of improvement in the or and I don't see why not especially in this kind of volume environment, where we're seeing.
Speaker Change: Such a strong start to the quarter and we've got some pretty easy comps in the may.
Speaker Change: For the year I fully expect us to be able to deliver a sub 60 or for the year.
Speaker Change: Don't see why we can't do that you've got fuel prices as fuel surcharge coming off that's supportive to the or kind of neutral from operating income, but still helpful.
Speaker Change: Sure.
Speaker Change: At the end of the day, we're running extremely well.
Speaker Change: Network, Mark and team have at Harman and so from a efficiency point of view I think operationally, we're going to see some benefits there.
Speaker Change: We don't anticipate the labor disruptions that impacted our ports.
Speaker Change: Our national volumes last year that impacted our network. When we saw had some of those stops and starts last August. So I think the impact that we had on casualty a year ago was a.
Speaker Change: Become a big tailwind to the or so.
Speaker Change: Quite bullish about our ability to to get back sub 60 and leverage.
Speaker Change: That's great volume that we've got to start the year.
Speaker Change: That's great. Thank you very much appreciate it.
Chris Wetherbee: Thanks, Chris.
Speaker Change: Okay.
Speaker Change: We'll go next now to Bryan Austin back of Jpmorgan. Please go ahead.
Speaker Change: Afternoon, Thanks for taking the questions.
Speaker Change: John maybe for you I think you mentioned that the cross border really haven't seen too much of impacts I just wanted to see if you could impact that a little bit more of it.
Speaker Change: The 181, everyone seems to be a big driver there, but I would have thought with maybe some network issues with your peers.
Speaker Change: In the east that might've been slow down, especially with the auto headlines as well. So I thought there would be appreciated and then just maybe if you can talk about how we should expect the pace of the buyback to ramp up from here after a pretty strong start in the first quarter.
Speaker Change: Thank you.
Speaker Change: Yes, Brian So maybe a couple of things there. So certainly as some of these tariff noise rolled on and off specific let's say autos at the beginning of April.
Speaker Change: No doubt we saw some choppiness in some of those cross border flows coming out of Mexico onto our network now I can tell you that has progressively smoothed out through the month and as of the last couple of days I think all of our production facilities are up and running and shipping automobile so.
Speaker Change: I feel good on that.
Speaker Change: The domestic product.
Speaker Change: That youre talking about the <unk>.
Speaker Change: Those volumes have just continued to be growing and strong Schneider.
Speaker Change: I am excited to say that we just launched this week over.
Speaker Change: Over 200, new shipments specific to auto parts.
Speaker Change: In conjunction with Schneider on our network, it's brand new business that we're bringing on and it's really our first foray into into a major way of moving that business. So.
Speaker Change: So I am quite pleased with that and <unk>.
Speaker Change: Frankly, we're still kind of just in the early innings of growth with <unk> as we as we work on that product to the southeast.
Speaker Change: Other areas.
Speaker Change: We've probably seen a little bit of cross border.
Speaker Change: Impacts specific to some of our steel business that news out of out of Mexico into the U S. But that being said, we've also seen some new opportunities materialize in which we're actually shipping some steel products out of Mexico up in the Canada into some other markets.
Speaker Change: So.
Speaker Change: There certainly is some impact there.
Speaker Change: But but the team is not resting as Keith said, if it's an all out Blitz literally.
Speaker Change: To do everything we can to make our own luck as is all of this uncertainty sort of unfolds on the tariff front.
Speaker Change: Hey, Brian just on the buyback so you'll see the filings I mean, we've been quite aggressive I think as of yesterday, we bought back 20% of the program.
Speaker Change: The 4 million, 4% share buyback for the for the year, So 20% of that program is complete.
Speaker Change: You should expect us to finish it by the end of the year.
Speaker Change: Complaining about 10% of the.
Speaker Change: The <unk>.
Speaker Change: Capacity per months.
Speaker Change: We've been quite aggressive given the pullback given the compression in multiples.
Speaker Change: The fact that we're trading at a discount compared to where we should be trading and so we're going to be aggressive.
Speaker Change: Up to the point that we see.
Speaker Change: The stock price getting closer to our intrinsic value. So so you should expect this program to be complete by the end of the year.
Speaker Change: Okay helpful. Thank you.
Brian So: Thanks, Brian.
Speaker Change: And your next question will come from fatty Shimon of BMO capital markets. Please go ahead.
Speaker Change: Thank you.
Speaker Change: I wanted to circle back on the volume framework, maybe a little bit more medium term.
Speaker Change: When when the network was put together the biggest kind of addressable market opportunity felt like being.
Speaker Change: Our U S Mexico drove in various end markets.
Speaker Change: A lot of these markets feel like they're under attack a little bit with this trade policy, whether it's autos or.
Speaker Change: Steel and other things like.
Speaker Change: Do you have do you I mean.
Speaker Change: From your comments that and feel like you're.
Your outlook is dampened by any of the things I just wanted to get some additional framework from you where do you see the opportunity potentially these end markets kind of do come under attack and ultimately end up being.
Speaker Change: More more more punitive from a growth perspective.
Speaker Change: Fatty I'll, let John provide a little color, but I'll, just say at a high level.
Speaker Change: Listen if these end markets are impacted.
Speaker Change: That's our job then to shift and create solutions and when I talk about market makers and I'll talk about land bridge if.
Speaker Change: If we lose a little bit because of the impact of tariffs on autos or tariffs on steel number one we don't think it's going to be material. This thing started to settle out it's doing exactly what we thought it would do in the automotive manufacturers are back online just making those those shifts overnight or impossible to do there is still demand in the U S for vehicles and <unk>.
Speaker Change: Is it producing that.
Speaker Change: That said this crisis, that's been created with the uncertainty in Canada, and Mexico, and and lessening their dependents upon U S markets has created opportunities.
Speaker Change: They can this numbers that offset some of those headwinds just over the last month, John can give you more color and names if necessary, but theres over $100 million of new revenue that this crisis has created.
Speaker Change: It originates in Alberta as it goes to Mexico.
Speaker Change: So you start thinking about the puts and takes in this again. This network is uniquely enabled to be able to do that so if we lose here, we're getting gain there and it's our job to go out and convert those opportunities and that's exactly the expectation that John and his team have and Thats exactly what theyre doing.
Speaker Change: Sandy.
Speaker Change: I think you know from our team we're focused on what we can control and frankly not that we are.
Speaker Change: Not keenly watching the tariffs evolve and understanding those impacts, but we are laser focused on the task at hand, and the key point.
Speaker Change: That sales blitzes, that's getting our.
Speaker Change: <unk> finished the 60 days sales Blitz.
Speaker Change: Where we met with over 500 customers.
Speaker Change: We believe we've developed a $100 million of new wins.
Speaker Change: In that effort that we'll onboard.
Speaker Change: Mostly in the merchandize in ECP spaces to Keith's point, we've seen good momentum.
Speaker Change: Largely I would say again in the in the energy space, but really across all commodities to figure out how we enhance this land bridge in and connect in Mexico in Canada, but it doesn't stop there.
Speaker Change: Dusting off the conversion files that we talked about back at IR day and.
Speaker Change: There is still a 100 million that I've targeted to my team. There that is three to $2 42 routes that that we can convert and provide a better product for our customer so I.
Speaker Change: I guess, if you put all of that together.
Speaker Change: Combined with the resiliency of our bulk franchise, which again I think if you look back to recession and pandemic time.
Speaker Change: That bulk franchise has stood up against a lot of uncertainty.
Speaker Change: And we feel really good about the demand.
Speaker Change: In coal potash in both U S and Canadian grain.
I fully expect we're going to outperform on our synergies this year.
Speaker Change: I'll bring you back.
Speaker Change: I think we can grow by $300 million and run rate on synergies in 2025, and I have no reason to believe we can't do that and potentially even outperform that.
Speaker Change: And I can assure you we're going to continue to be and we have been.
Speaker Change: Super disciplined on our pricing.
Speaker Change: Pricing model has held in really strong super proud of the team and we're going to keep the foot, we're going to keep it and throttle eight.
Speaker Change: On the pricing front as we as we look forward fatty I've got I'm going to give you a case in point this.
Speaker Change: As a fellow Canadian I'm going to give you a Canadian success story.
Speaker Change: This crisis has created so just last week I was in Toronto.
Speaker Change: And I was having a conversation with them.
Speaker Change: CEO fell a CEO of a very large Canadian retailer.
Speaker Change: About opportunities about diversifying markets about imports about exports.
That might not involved in United States, if that's not the desired market or.
Speaker Change: The warrant to market to go to another question about how many things are on Canadian shales, the Canadian consumers purchase.
Speaker Change: That yesterday originated in the United States, but where do they truly originate from where are they produced and if you really get into the detail.
Speaker Change: And you're motivated to create solutions for the customer you lead them to information that quite frankly.
Speaker Change: You see that a lot of these products.
Speaker Change: In this case are produced in Mexico than their truck to the United States to be packaged and labeled and warehouse and then trucked out of the United States to go across the border.
Speaker Change: So the Canadian shell so is that good for the environment I would say no.
Speaker Change: Is that good for cost control it for optimizing our supply chain I would say that's not best in class, but when you're a railroad that can uniquely connect the origin destination and the middleman is redundant or not necessary an inefficient and in some cases. They don't want you to be there that creates opportunities. So those discussions.
Speaker Change: <unk> are being had.
Speaker Change: They are being have with people that have interested and motivated mines and for us to be able to help create some of those wins. It's just all accretive durability that this unique combination has created again, creating a solution that quite frankly.
Speaker Change: Before was never possible and even today only this railroad can create that kind of solution that has the power of this network.
Speaker Change: That's great appreciate the details thanks.
Speaker Change: Thanks.
Speaker Change: Thank you. Your next question will come from Ravi Shanker of Morgan Stanley. Please go ahead.
Speaker Change: Great. Thanks, Good afternoon, everyone just a follow up on the point of <unk>.
Speaker Change: Trolling the controllable is here.
Speaker Change: Is the plan if there is a prolonged cliff in incoming port volumes is there.
Speaker Change: Pandemic playbook again dustoff on cost.
Speaker Change: Anything you can do with labor flexibility or is it just a wait and see approach.
Speaker Change: Now, it's never going to be a wait and see we're always paying attention to that Ravi and I can tell you I've been doing this for three decades, now and I've been a <unk> leader of this industry for two decades that I've been through several recessions up cycles down cycles, we have metrics in our company, we see slippage when it's occurring and we take action on a daily and on.
Speaker Change: The weekly basis. So we see we have visibility to this alleged class we see the shifts coming we know two or three weeks ahead of time, we're not going to wait two or three weeks to take action, we're going to start lining up responsible action. We can adjust crew starts we can adjust fleet sizes. We can adjust yard expenses, we have all kinds of levers there.
Speaker Change: We quite frankly have pretty good muscle memory and swing history of pulling in and swinging in this railroad and those kind of times.
Speaker Change: We're going to be the best ship in the storm Theres no doubt about it I don't think thats going to happen.
Speaker Change: Planning for a recession, but we're always prepared for one.
Speaker Change: And Keith I would add I mean, we're two years in this.
Speaker Change: C. PKC, we're experienced enough now on the southern region that where we can react quite quickly move IRR around crew starts whatever it is we need to do again I think you said it better control, what we can control and Thats, what we will do it it's not in our hands.
Speaker Change: Understood. Thank you.
Speaker Change: Yes.
Speaker Change: We'll go next now to Tom <unk> of UBS. Please go ahead.
Speaker Change: Yes, good afternoon. So.
Speaker Change: Keith and John you've had some pretty interesting commentary on kind of pivoting to the.
Speaker Change: Canada, Mexico opportunity and you mentioned the $100 million opportunity out of.
Speaker Change: Have you felt burger to Mexico.
Speaker Change: Is there more perspective, you can offer like if you said that should the right framework, but just trying to think about the size of that relative to if you said you know.
Speaker Change: Mexico, Canada relative to the size of your Mexico U S business is I'm, assuming it's a lot smaller but.
Speaker Change: Maybe like what the starting point is and I guess other examples of where you potentially could see growth outside of ECP or just to frame it a little bit more because it seems something new and pretty interesting, but little hard to get your arms around how to frame it or give it context. Thank you.
Tom: Tom its a.
Speaker Change: Good question and it's honestly it's.
Speaker Change: As part of this sales Blitz, we've deployed it's really been trying to understand that.
Speaker Change: And peg it ourselves.
Speaker Change: I can tell you between LPG plastics.
Speaker Change: And frankly those have been the biggest three so far.
Speaker Change: The ECP has led the way I will tell you it was down in Mexico last week meeting with a number of customers.
Speaker Change: And certainly some of the steel business down there has been has been impacted by cross border and that but.
Speaker Change: Getting into a discussion with the CEO of this major steel company and really picking your brain around well have you sold into the Canadian market and what products would be conducive and frankly, maybe not dissimilar to what we stepped into when we took over kcl on the auto front kind of that.
Speaker Change: Crisis.
Speaker Change: And creating something good out of that with our closed loop.
Speaker Change: In the early innings of that in this process and I don't think to your point.
Speaker Change: It probably isn't anywhere to the border of order of magnitude in terms of like Mexico into the U S or Canada.
Speaker Change: Into the U S.
Speaker Change: Certainly an opportunity there.
Speaker Change: Just give you. Another example.
Speaker Change: Example to help frame it up like grain that moves out of the U S. Today in the Mexico.
Speaker Change: <unk> does not have to be fumigated debt.
Speaker Change: It can move.
Speaker Change: I'm going to say generally seamlessly into the market grain out of Canada is an area where past regulation has required the screen to be fumigated.
Speaker Change: And it also requires some different documentation and policy to move into Canada or into Mexico, and it's not that it's not we're not doing it today, we are but as Keith talked about these are the things we're working with the governments on both sides of the border to say how do we foster this in.
Speaker Change: This case grain trade in a more seamless way that.
Speaker Change: We can certainly enabled through our 8500 foot grain product out of Canada, and Mexico. So so look.
Speaker Change: A lot.
Speaker Change: That said, there, but and I will be able to probably hopefully quantify it.
Speaker Change: A lot better.
Speaker Change: We move down this path, but I would say the most important point is we're not resting on our laurels here. We're attacking this opportunity just like we did the autos a year and a half ago and.
Speaker Change: We're already starting to see some early early results.
Speaker Change: So it sounds like it could broaden out from ECP and maybe steel in grain and it could be broader than that but you just need some time to see how that develops is that fair.
Speaker Change: We've got to sweat it out.
Speaker Change: Tom to John's point in talking about grain is speaking to that specifically we had to move two weeks ago.
Speaker Change: It was a test move the needle move for us to get Oates that originated Saskatchewan that went all the way deepened in Mexico. It's a 3000 mile unit train move that's a pretty exciting.
Speaker Change: When you think about when you think about the power of that but again that fumigation as an impediment. It's additional costs additional time it affects the assets. It affects the rate we have to charge. It affects the customer service. So why does it need to be there we got the mines and the motivation now and the attention to the Mexican government, we've got a great.
Speaker Change: Spirit of partnership with the Mexican government, we educate we communicate we eliminate those unnecessary barriers and we incent trade more trade to move between the nations of Canada and Mexico.
Speaker Change: Yes.
Speaker Change: Great. Thanks for the time.
Speaker Change: Thank you. Your next question comes from Kevin Chiang of CIBC. Please go ahead.
Speaker Change: Yes.
Kevin Chiang: Hi, Good afternoon. Thanks for taking my question, maybe just on the auto front.
Kevin Chiang: Does it feel like at least with this U S administration re shoring U S auto production as it.
Kevin Chiang: It sounds like Q2, the industrial policy and I think over the past few weeks, we continue to hear more <unk>, three Oems and foreign Oems.
Speaker Change: About increasing U S production I'd be interested in knowing what discussions you are having with these customers as they look to reshape their supply chain.
I guess, how CPA CPE Casey can assist with that.
Speaker Change: Well, maybe maybe a couple points on that Kevin.
Speaker Change: Yes first of all.
Speaker Change: As I said at the beginning where we are in a pretty good position on our auto franchise right now.
Speaker Change: We've got all our production facilities up and running and shipping and I can tell you.
Speaker Change: For the most part inventories are fairly low.
Speaker Change: Across.
Speaker Change: Our network and across Canada.
Speaker Change: So that's been actually pretty supportive of volumes and I do believe the consumer.
Speaker Change: As a whole maybe has been a little more aggressive in looking to buy an automobile.
Speaker Change: Maybe earlier in this year than maybe they had planned and thats spurring some demand.
Speaker Change: I can tell you and I met with.
Speaker Change: A leading automotive schiffer here, a couple of weeks ago, and they got 60000 unfilled orders in Canada alone. Those are sales made where they are waiting on vehicles.
Speaker Change: To get into the marketplace.
Speaker Change: And Thats certainly the area, which we do best and we fell.
Speaker Change: The other piece that I would point to is we got 6000 available acres across this network in three countries that we can develop.
Speaker Change: And I think you've heard this story in our land value quite.
Speaker Change: Quite a bit over the years on how we've created unique opportunities for our shippers and our customers and co location.
Speaker Change: <unk>.
Speaker Change: Across our franchise and certainly that is something that.
Speaker Change: We've been aggressive to get into the marketplace.
Speaker Change: And.
Speaker Change: Frankly, we just published.
Speaker Change: Published nine site ready locations.
Speaker Change: That we've gone out and were actively marketing those locations with not only the Oems and automotive companies, but all sorts of support of industry that may be looking to do more or build more in in the states.
Speaker Change: So we'll see what that brings but no as it stands right now.
Speaker Change: I fully expect in our automotive franchise to continue to produce at the at a record rate we've been able to do really last year and through the first quarter.
Speaker Change: That's great color. Thank you very much.
Speaker Change: Yeah.
Stephanie More: We'll go next now to Stephanie more with Jefferies. Please go ahead.
Stephanie More: Hi, good afternoon. Thank you.
Speaker Change: One is a quick follow up question and just your commentary in terms of our performance.
Speaker Change: The full year and the second quarter did I hear you correctly kind of idea that you expect <unk> to improve as the year progresses are you, meaning kind of sequentially off of this first quarter level.
Speaker Change: Yes, absolutely.
Speaker Change: Okay got it. Thank you and then second more of a big picture question here.
Speaker Change: Well there is your sales blitz or just continuing to have conversations with customers have you, particularly those customers in Mexico are with businesses in and out of Mexico have you seen any kind of increase in activity, maybe production move to Mexico or plan to move to Mexico, just given the disruption or potential.
Speaker Change: Option and trade lane from other parts of the World and maybe viewing Mexico as a viable alternative from a manufacturing standpoint. Thanks.
Speaker Change: Well you know what.
Speaker Change: Industrial device development pipeline.
Speaker Change:
Speaker Change: On our network in Mexico, It was really strong.
Speaker Change: A number of projects underway underdeveloped.
Speaker Change: <unk> under construction.
Speaker Change: I wouldn't characterize Stephanie that maybe we're seeing a glut of new we've certainly seen some pause but.
Speaker Change: I would say the majority are continuing to push forward.
Speaker Change: Which is something we've watched really close given some of this uncertainty if those.
Speaker Change: Projects would be shelf or changed or.
Speaker Change: Sort of the boardrooms, we're thinking differently around those investments and we really haven't seen that.
Speaker Change: At all on our grandstand fail so I.
Speaker Change: To believe that our Mexican territory is ripe for development.
Speaker Change: And we're going to continue to certainly push that veterinary dose.
Speaker Change: Thank you I appreciate it.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Thank you we'll go next to Jonathan Chappell of Evercore Evercore ISI. Please go ahead.
Speaker Change: Thank you and good afternoon.
Speaker Change: John I feel like if we didn't have the crisis to talk about there might be a little bit more focus on Gemini now you were super excited about it late last year and you've mentioned a couple of times. This morning. This afternoon is there any way to put numbers around what the Gemini potential is given your positioning with the two partners there whether it's in units our revenue and has that changed at all.
Speaker Change: Or kind of what's called the 12 to 24 months period.
Speaker Change: Given some of the uncertainty thats emerged since that partnership started.
Speaker Change: John.
Speaker Change: <unk> azzam around it has not waned one bit actually there.
Speaker Change: It started off.
Speaker Change: I'd say, even faster than we anticipated DP world is doing a tremendous job with Gemini at <unk> term.
Speaker Change: We are.
Speaker Change: Hemp to quantify it a little bit for you.
Speaker Change: We're moving quickly towards two trains a day.
Speaker Change: That's the pressure on wanted to put on Mark and the team in Vancouver.
Speaker Change: To get to two trains a day launch status and term.
And the majority of that tied to tied to Gemini.
Speaker Change: They've done a great job yet.
Speaker Change: Part of St. John.
Speaker Change: Americans move their service.
Speaker Change: Now as part of Gemini out of Halifax down to that port.
Speaker Change: So we're super pleased with that.
Speaker Change: Maybe the one area.
Speaker Change: We'll watch is Lazar Roe.
Speaker Change: We have a.
Speaker Change: A lot of opportunity between Maersk and Hapag focused on cross border into into the U S.
Speaker Change: I would say the momentum hasnt slowed on that certainly a portion of that was tied to import through Mexico from China. So we're watching that and how that may change or not but honestly I don't.
Speaker Change: I really feel that that's going to be a needle mover.
Speaker Change: At the end of the day.
Speaker Change: But needless to say no I continue to be Super excited about what Gemini brings to this network.
John: Thanks, John.
John: And your next question will come from Ken Hester Bank of America. Please go ahead.
Ken Hester: Great good afternoon.
John I.: John I.
Speaker Change: I guess, maybe just you've had a couple of questions on the Golar, but I just want understand that the normal post <unk> you got about 260 basis points I think I just want to understand your comment there can you outpace normal performance given the weather you had or or were you, saying the weather wasn't.
Speaker Change: Two difficult that that is just going to be a normal path and then my question. John on pricing you haven't really gotten a lot of pricing you mentioned pricing real quick but revenue priority I'm really accelerated.
Speaker Change: I guess focused on coal grain potash ECP any any thoughts you want to talk about seeing some of the accelerating strength in some of those commodities.
Ken Hester: Ken I think that 200 to 250 basis points, a realistic expectation, obviously theres areas, where we can't control like stock based comp in there.
Speaker Change: If that becomes.
Speaker Change: A tailwind it could be bigger than that.
Speaker Change: Im optimistic that long, but.
Speaker Change: I think the $202 50 is fair.
Speaker Change: Thanks, Ken.
Speaker Change: Comments on pricing.
Speaker Change: I continue to tell you that this team is the best in the industry and pricing to the value of our servicing capacity and I think Thats left we've continued to see our renewals are on the very top end, 4% to 5% plus.
Speaker Change: I'm quite pleased with that.
Speaker Change: I can tell you in this quarter.
Speaker Change: We've repriced two existing legacy.
Speaker Change: Tcs contracts that were out there there wasn't much left to reprice in and we got through those this quarter.
Speaker Change: Positive way so.
Speaker Change: I feel good about that.
Speaker Change: I think we guided IR.
Speaker Change: Good day back then at pricing at 3% to 4% I My expectation is to exceed that and as I said earlier.
Speaker Change: VR CPI.
Speaker Change: Came in today at three 1% for art.
Speaker Change: $25 26 crop year, so we're pleased with where that landed.
Speaker Change: So again, we'll keep it on throttle eight as it relates to pricing.
Speaker Change: Thanks, Sean.
Speaker Change: And your next question will come from Steve Hansen of Raymond James. Please go ahead.
Steve Hansen: Oh, Yes, I think Thats excuse me and Keith I was pretty taken by your upbeat commentary about the FAA discussions pertaining to technology deployment and I guess, some potential benefits of <unk> and service is there a way to frame the.
Steve Hansen: The timeframe around that deployment and what you think it could ultimately mean to the efficiency and safety.
Steve Hansen: A very short term the changes that mark spoke to on.
Steve Hansen: That orders with our Green fleet, there is an optimal design that we've implemented.
Steve Hansen: <unk> spending and investing some money in <unk>, which is our terminal there in Kansas City that allow us specifically the legacy case, yes, great network to benefit from it takes cars that would've been shuffled up kudoka yard to be bad order repaired and then shuffle back down to being trained so we're going to get some relief with a waiver that allows us to.
Steve Hansen: I'm out and train at Laredo, as well as <unk>, which optimize that supply chain and that's imminent.
Steve Hansen: Yes, that's within the days, we'll have it soon I've already spoke about it. This morning, and then part two on the air the redundant air brake tests that Mark spoke of we expect that in the near term as well. So we've had we've had FRE all property for the past two weeks in Laredo seeing very good signs.
Steve Hansen: Doing a good job on R. R.
Steve Hansen: Our staff down there as shown on what we do how we do it.
Steve Hansen: We believe within the coming months.
Steve Hansen: It's a really good dialogue back and forth I know I spent some time in Washington, just like you did.
Steve Hansen: Good dialog with fr dialog with kind of what they see with data how we can use that data to them better.
Steve Hansen: Lot of different things that were taken away over the past years.
Steve Hansen: That's great to hear particular.
Steve Hansen: Yeah.
Speaker Change: And well go next now to Brandon Glinski of Barclays. Please go ahead.
Brandon Glinski: Hey, good afternoon, everyone. Thanks for taking my question Mark I guess following up on that I know you spoke to the SRA as well in your prepared remarks, but <unk>.
Brandon Glinski: You mentioned something along the lines of getting your labor agreements in place is helping the network actually run better or maybe I misheard you on that but I guess, what's the plan. This year just looking at from an operational perspective, combating inflation and getting the efficiency up even further.
Brandon Glinski: Yes, so a couple of things first I would say every year, we have GM meetings, where we look at taking cost out we do that first regardless of what.
Brandon Glinski: The increase that we have as far as cost of living for unions, we look at that first.
Brandon Glinski: 60 of Howard upward of $70 million. It would take out just cost alone and then for the stability that we have spoke about is the three unions that we've already signed up this year at 3% that'd be a four year deal where you are on the cost of finished enough TCR C and the RTC, which is the dispatchers that a bit.
Brandon Glinski: Coming up in the coming weeks, we will go to.
Brandon Glinski: Coming out of mediation on that end.
Brandon Glinski: Should have that finished up in arbitration here soon now when we turn to the U S side, we are still looking at our hourly agreements. We can have hourly agreements across a couple of the.
Brandon Glinski: The southern region, meaning the former Midsouth jcs some of the elevated territory of just takes you back some of the operating agreement in place. So looking at doing some of those hourly agreements down there. So some of that you can change some of the crew base around you can also run longer in some areas, which we have implemented towards the.
Brandon Glinski: New Orleans route. So certainly every opportunity we can take now were taken and then once we get new agreements in place we can build upon that.
Brandon Glinski: And I would even say just from the Mexico perspective, we can continue to work with the unions in Mexico to do more.
Brandon Glinski: <unk>.
Brandon Glinski: At steady state and we work with them every every month and every year to do those agreements, but it is certainly making progress for sure.
Brandon Glinski: Okay.
Speaker Change: Thank you Mark.
Brandon Glinski: Yes.
Brandon Glinski: Yes.
Speaker Change: And your next question will come from Ari Rosa of Citigroup. Please go ahead.
Ari Rosa: Great. Thanks, good afternoon.
Ari Rosa: Going back to the regulatory discussion maybe you could talk about what are some of the other areas that you are pursuing and just how impactful you think they could be in terms of the cost savings opportunity or the efficiency opportunity. That's gained from that thank you.
Ari Rosa: Yes. So the code will technology is something we've had in place for years in Canada, and partly what that does for years increases the cycles of turns on trains, meaning the equipment of grain.
Ari Rosa: Grain hoppers, if its call whatever the cycle may be includes locomotives. So I can do more with less because im spin in the assets. So much faster and you talk about what we can control. That's what we can control. So when I do the inspections of that can certainly pinpoint mechanical work whenever I do have to stop the train.
Ari Rosa: The inspection and I can understand what I can do at once not just several time on inspections. So working with FRE, if we can get that in place with the.
Ari Rosa: With the U S operations, we can certainly do that towards the PNW, we can certainly do that down towards Mexico and again, it's a one stop shop with inspections. There is lots of money to be had in that I don't want to quantify it until we can see exactly what we can do with that yet but again there is many more opportunities from a safety perspective.
Ari Rosa: From Hotbox detectors that we talked about just inspections of the.
Ari Rosa: Portals that we have where we can do more work and a spec cars and see more defects that we do today from the human eye.
Ari Rosa: Certainly from a technology perspective that it's much better now, saying it will get away from human I will always do that work, but I guarantee you we will have a safer railroad because.
Speaker Change: Thank you. We'll go next now to bid <unk> of Desjardins Securities.
Speaker Change: Yes. Thank you very much and thanks for taking my question John with respect to the China vessel surcharge I was wondering if you have seen any customer react to this potential.
Speaker Change: Any new calls into your reports as customers try to diversify away from U S sports and talking about Fort movement with respect to St. John.
Speaker Change: Given the increased momentum with the south or southeast Asia.
Speaker Change: Movement at the Red Sea channel and the E U.
Speaker Change: Have you seen any increased dialogue to two to ramp up at the <unk>.
Speaker Change: Foster pays the operation and the St John and or through the eastern ports. Thank you.
Speaker Change: Yes.
Speaker Change: We've got pretty good momentum.
Speaker Change: St John.
Speaker Change: Again, I feel really good with.
Speaker Change: The ramp up of Gemini, there, but our existing business.
Speaker Change: With the other steam ship lines has been growing also in.
Speaker Change: Frankly, we just turned on a number of additional gen sets.
Speaker Change: In that marketplace.
Speaker Change: It's going to provide export opportunities frankly of products that maybe traditionally were coming out of the U S.
Speaker Change: Frozen products coming out of the U S that now where we're working with Canadian producers of similar products for export.
Speaker Change: And a lot of that is going to be pointed at St. John for us. So.
Speaker Change: Overall feel.
Speaker Change: Ongoing positivity around the whole St John opportunity and on the.
Speaker Change: <unk> of the growth we already have.
Speaker Change: At that location.
Speaker Change: Upside on capacity as well I mean, there is plenty of room out there we've got some industry what was the other part.
Speaker Change: With respect to the.
Speaker Change: China vessel surcharge wetter.
Speaker Change: Or increased dialogue for people wanting to go to Canada instead.
Speaker Change: Yeah.
Speaker Change: I would say pretty minimal at this point.
Speaker Change: I think overall there is a fair amount of relief fund sort of the changes that were implemented versus what that could have been initially when it was talked about so.
Speaker Change: No.
Speaker Change: I think the steamship lines will adjust their fleets appropriately.
Speaker Change: Ultimately.
Speaker Change: For the U S ports I'm not sure that it's going to impact us a whole lot one way or the other whether it's think about Mexico and.
Speaker Change: <unk>.
Speaker Change: In Canada, we are.
Speaker Change: We're looking at a few opportunities down in the Texas area with some existing business and what alternatives. If in fact some of these applications may apply to that business, but again.
Speaker Change: These arent huge opportunities.
Speaker Change: But certainly it's a wait and see and we will understand more as it progresses as we get closer and closer to October.
Speaker Change: Okay. Many thanks.
Speaker Change: Okay. Thank you.
Speaker Change: Thank you we have reached our allotted time for Q&A I would now like to turn the call back over to Mr. Keith Creel.
Keith Creel: Hey, Thank you Melissa and thank you for your time. This afternoon I Hope you walk away with a bit of color certainly in spite of the winter in spite of the many uncertainties that we're all facing.
Keith Creel: Reduced the very strong first quarter, we're set up well to produce a strong year in 2025. This unique three nation network is built for times like this we're going to create solutions not excuses that will lead the industry unique.
Keith Creel: Growth outcomes and value for our shareholders not just in 2025, but beyond.
Keith Creel: Thank you and we look forward to sharing our second quarter results.
Keith Creel: Thank you, ladies and gentlemen that will conclude todays <unk> first quarter 2025 conference call again, thanks, so much for joining US everyone. We wish you all a great remainder of your day Goodbye.
Keith Creel: [music].
Keith Creel: Hum.
Keith Creel:
Keith Creel: [music].
Keith Creel: Okay.
Keith Creel: [music].
Keith Creel: Okay.